By Sam Becker
Amazon is pausing construction on its second headquarters in Virginia—often referred to as “HQ2”—as the company looks to find ways to cut costs, gears up for an anticipated economic slowdown, and grapples with a reduced need for office space in a post-pandemic world. The news was first reported by Bloomberg today and confirmed by CNBC.
The HQ2 project, which is currently under construction in Arlington, Virginia, outside of Washington, D.C., is being built in phases. The first phase, called Metropolitan Park, is set to be completed and open to as many as 8,000 workers as soon as June. But the second phase, called PenPlace, is being delayed, which throws the company’s plan to ultimately employ roughly 25,000 people at the completed HQ2 project into flux.
“We’re always evaluating space plans to make sure they fit our business needs and to create a great experience for employees, and since Met Park will have space to accommodate more than 14,000 employees, we’ve decided to shift the groundbreaking of PenPlace (the second phase of HQ2) out a bit,” John Schoettler, Amazon’s VP of global corporate real estate and facilities, told CNBC in a statement. “Our second headquarters has always been a multi-year project, and we remain committed to Arlington, Virginia, and the greater Capital Region.”
The construction pause follows the company’s January announcement that it was eliminating 18,000 jobs to try and reduce its costs, and a worse-than-expected Q4 2022 earnings report at the beginning of February, which saw the company bring in $300 million in profits—a far cry from the $2 billion analysts were expecting. Accordingly, Amazon’s leadership is looking for further ways to cut expenses as it faces the most difficult economic environment in more than a decade.
Further, the economy has undergone some drastic changes in the years since Amazon first announced the HQ2 project, mostly due to the pandemic. Construction costs, for one, have risen substantially (they increased 14.1% during 2022 alone), over the past six years. Millions of employees are also now working remotely, reducing the need for office space for many large companies, which may also be a factor at play, despite the company recently announcing that employees would need to be in the office at least three days a week starting in May. As of early 2023, office occupancy is only about half of what it was in the country’s largest cities before the pandemic.
Those factors may help explain why Amazon is deciding to temporarily halt construction.
But putting the HQ2 project on ice was likely something few expected, especially after the company made something of a spectacle when it announced it was looking to build the project away from its Seattle home back in 2017. Amazon originally anticipated spending around $5 billion on the project, and accepted proposals from hundreds of cities across the country—a diverse list that included Birmingham, Alabama, Calgary, Alberta, and Tucson, Arizona.
Ultimately, Amazon decided the project would be split between New York City (Queens) and Crystal City, Virginia, and ultimately folded the entire project into a single new development in Arlington. Now, as Amazon is evidently hitting pause on the Arlington project, it raises questions as to whether HQ2 will ever actually see completion.
The decision to delay HQ2’s second phase also sends a warning message about the state of the economy and the future of in-office work: If a company as flush as Amazon is second-guessing its spending decisions, it may be an ominous sign for everyone else.